Ownership, tax treatment, succession planning and the transfer of wealth can significantly influence the outcome for beneficiaries, particularly when families span multiple jurisdictions.
At our recent Momentum Wealth International Global Citizen webinar, a case study explored how the real complexity of offshore investing often lies in how wealth is owned, transferred and inherited across generations and jurisdictions.
The family’s situation
Duncan, a 72-year-old retired cattle farmer from the Natal Midlands, wants to pass his wealth equally to his three grandchildren: Peter, John and Suzie. Following the sale of his farm and farming assets, he has R21 million available for investment. A trust, of which Duncan and one grandson, Peter, are beneficiaries, holds an additional R8.35 million in cash.
His family is geographically dispersed. John lives in the United Kingdom, Suzie is emigrating to Australia and is in the process of ending her South African tax residency, while Peter intends to remain in South Africa.
Duncan’s current income needs are already met through a living annuity, and he also owns the home he shares with his wife, Leigh-Ann. His objective is therefore not income generation, but efficient succession planning. He wants Leigh-Ann to inherit the family home, his living annuity proceeds and an offshore investment allocation, while ensuring that his three grandchildren benefit equally from the remaining capital.
Why equal didn’t necessarily mean fair
At first glance, dividing Duncan’s wealth into three equal portions seemed straightforward. However, the beneficiaries’ differing tax residences and personal circumstances meant that identical inheritances could result in very different outcomes.
Among some of the key considerations were:
- The tax treatment of offshore investments in the UK, Australia and South Africa.
- Whether beneficiaries should inherit investment ownership or receive cash proceeds.
- Estate liquidity requirements and potential estate duty liabilities.
- The offshore investment options available to a South African trust.
The discussion highlighted an important principle of succession planning: equal allocations do not always create equal outcomes. The focus should be on what each beneficiary ultimately receives after taxes, costs and structural implications have been considered.
Structuring the solution
The proposed solution used different structures to meet different objectives.
For John and Suzie, separate Global Wealth Endowment Life Insurance Bonds were recommended. Duncan would remain the owner during his lifetime, while the grandchildren would be nominated as beneficiaries of the proceeds.
This distinction was important. Transferring ownership of a foreign investment contract to a UK or Australian resident can create unintended tax consequences. By structuring the arrangement so that they receive the death benefit proceeds instead, potential complexities may be reduced. Specialist tax advice in both jurisdictions would still be essential.
The trust’s capital was invested in a Global Wealth Endowment Capital Redemption Bond (sinking fund) through a prudential limit capacity provider (asset swap provider). Because South African trusts do not have individual offshore allowances, an asset swap provides a way to achieve offshore market exposure while keeping the investment denominated in hard currency.
A separate allocation was made to a Global Wealth Endowment Life Insurance Bond, payable to the estate, to provide liquidity for anticipated estate duty.
The key lesson
The case study demonstrates that successful offshore planning extends beyond selecting funds, shares or investment strategies. The ownership structure, the way benefits are paid, the tax position of beneficiaries and the efficient transfer of wealth across generations can be equally important considerations. This is particularly relevant when families are spread across multiple jurisdictions. What appears to be an equal distribution of assets on paper may produce very different outcomes.
In Duncan’s case, success was measured by ensuring that his wealth was passed on efficiently and equally to his three grandchildren, with the structures tailored to achieve that outcome.
To learn more about offshore investment solutions for South Africans with Momentum Wealth International, visit our website here: https://momentum.co.gg/offshore-investment-solutions-for-south-africans
